Estonian gas station chains: We're selling under cost price
After Neste cut prices Monday, other fuel chains followed, sparking higher sales. But Circle K and Alexela say such low prices can't last without losses.
On Monday morning, a liter of 95-octane gasoline cost more than €1.60 at some stations, but prices kept falling throughout the day, with some selling fuel for just €1.304 per liter.
The shift came after Neste decided to end fuel discounts linked to loyalty cards and instead lowered pump prices for all customers. Competitors followed suit, dropping their prices as well.
Tarmo Kärsna, Alexela's head of business development, told ERR that Estonia's retail fuel market is highly price-sensitive and competitive — when one player changes prices, others usually respond.
"Yesterday's price cut was initiated by Neste, which is part of an international fuel group and controls its entire supply chain from production to retail. That position gives them more flexibility than Estonian companies can afford," Kärsna said.
Indrek Sassi, Circle K's fuel pricing manager, noted that Monday's sales volumes were significantly higher than usual. But at those prices, he said, retailers cannot make a profit.
"Right now, retail prices are lower than wholesale prices, which is unusual. Most of the cost of motor fuel comes from excise duty, reserve fees and value-added tax — and there's been no talk of cutting taxes. It's fairly safe to assume that pump prices will have to correct sooner or later, because at this level fuel sales are loss-making," Sassi said, adding he could not predict how long the correction might take.
Kärsna stressed that Alexela is based on Estonian capital and is focused on maintaining a strong local energy business for the long term.
"A price war where fuel is sold below cost directly threatens that sustainability," he said.
According to him, posted fuel prices remain an important indicator, but it is becoming increasingly relevant who supplies the fuel and what value the company provides to its customers and to Estonian society.
Neste: Change difficult on a long-stagnant market
Neste's head of business clients, Martin Õunap, said on Vikerraadio's "Uudis+" program that on Monday the company had to repeatedly lower prices, as competitors kept trying to undercut each other.
"The market has operated in exactly the same way for a very long time — any change comes slowly and step by step," he said.
Õunap explained that Neste chose its new pricing approach based on experience in Finland, where the model has been in place for years and has been well received by customers. The company can also reduce its environmental footprint, since it no longer needs to issue large numbers of plastic loyalty cards.
Responding to competitors' claims that fuel is currently being sold below cost, Õunap said there have been previous campaigns where prices dropped sharply.
"Everyone should have at least a small margin and things will balance out over time," he said. "We'll see how it develops."
He added that he could not say whether current price levels would last for hours, days or weeks.
"This is more of a response to local competition — we're watching the game. There are no fixed rules here, so let's keep an eye on price towers and that will give the most up-to-date answer," Õunap said.
--
Editor: Marcus Turovski
